Despite initial anticipation that cable and satellite companies would use the advanced wireless services spectrum auction to catapult into the mobile marketplace, the hype doesn’t seem to be panning out. However, walking away from the spectrum auction may not be a bad thing, at least for the satellite companies-and it doesn’t necessarily mean that they have no path to wireless.
| Click here for the latest headlines from the AWS auction. Click here for full AWS auction coverage. |
By the end of the second week of bidding, the non-traditional bidders had mostly dropped out of the auction or opted to focus on small slices of spectrum within their wireline footprint. Early on, the companies had angled for large blocks of regional spectrum-until the bidding spiraled upwards of $100 million per license for even 10 megahertz of spectrum in the six regions of the continental United States.
The bidders that have dropped out include:
- Wireless DBS L.L.C., a partnership between EchoStar Communications Corp. and DirecTV Group Inc. The satellite providers put up the largest upfront payment of the auction: $972.5 million, sparking anticipation that they would be significant auction players and possibly build out a new national wireless network.
- Dolan Family Holdings L.L.C., backed by Charles Dolan, the chairman of CableVision System Corp. The company started out with nearly $150 million in bidding eligibility, but that had dropped to $71 million by round 18 and then to less than $2 million in round 22. By the end of round 24, Dolan Family Holdings had dropped out completely.
However, the joint venture between Sprint Nextel Corp. and four cable companies was still in the game, placing 97 high bids totaling $1.5 billion in round 25 of the auction. Also, Cable One Inc., a cable company that provides service in the central, Southeastern and Western United States, had committed $6 million to 24 spectrum licenses in states including Oklahoma, Texas, Mississippi and Idaho as of round 25. The Cable One bidding entity is backed by investments from The Washington Post Co. and Warren Buffet’s Berkshire Hathaway Inc.
However, Bear Stearns analyst Phil Cusick noted that not buying spectrum doesn’t necessarily put the satellite vendors out of the wireless game.
“We believe that they could choose instead to buy satellite providers Motient [Corp.] or SkyTerra [Communications Inc.] to access nationwide spectrum,” Cusick wrote in a research note. “The [Direct Broadcast Satellite] player withdrawal is a positive for companies that need to buy spectrum in this auction like Leap [Wireless International Inc.], MetroPCS [Communications Inc.], and T-Mobile [USA Inc.], but not necessarily a change for national telcos or tower companies as the DBS players may have another route to compete in the wireless space.”
Motient recently sold off its terrestrial wireless holdings and has been refocusing its efforts on satellite communications. The company announced in May that it would be working with SkyTerra to consolidate the ownership of subsidiaries Mobile Satellite Ventures L.P. and TerreStar Networks Inc. The consolidation will lead to SkyTerra controlling MSV and Motient controlling TerreStar, according to Motient company statements.
Analyst Doug Shapiro of Bank of America Equity Research noted in a research report that DirecTV’s stock rallied after the company bowed out of the auction and that the move was positive for the company.
“We think the decision to pull out not only eliminates the immediate risk of an unexpectedly big investment but also supports management’s repeated contention that it will remain disciplined pursuing broadband,” Shapiro added. He went on to say that the “bear case that cable competition is already significantly pressuring DBS [subscriber] growth, and set to get worse, has been overstated.”
